NFT
Last week, New York’s trial began for a former OpenSea employee charged with bank fraud and money laundering in what is believed to be the first case of insider trading related to NFTs. He was convicted of wire fraud and money laundering, both of which carry a maximum sentence of 20 years in prison. His sentencing is pending August 22.
To recap what happened: OpenSea is the leading NFT marketplace (and completely dominated the industry at the time of the alleged crimes, from June to September 2021), and the front page often featured NFT collections of choice, leading until prices on those collections go up.
Nathaniel Chastain knew in advance which collections would be displayed, and has been accused of buying items from those collections in advance and selling them for a profit when they were featured as their prices increased.
He did this using multiple anonymous wallets and in violation of his contract, which prohibited such behavior.
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Chastain’s attorneys have argued that the term “insider trading” should not be applied since the defendant did not trade securities, and the term could confuse a jury. As such, the case raises the question of whether insider trading can refer to trading in essentially anything, but it also has implications for NFTs and how they are classified.
What kind of assets are NFTs?
The prosecutors, in this case, charged Chastain, now a convict, with bank fraud and money laundering, meaning they are not required to identify NFTs as securities, but can NFTs in fact be classified as such?
This issue ties into wider debates about crypto and its regulation in the US and globally, and there are mixed messages. The CFTC in the US oversees commodities and has stated in its case against Binance that Bitcoin, Ethereum and Litecoin are commodities. Meanwhile, the SEC, which deals with securities, has sued crypto platform Bittrex for “operating an unregistered national stock exchange, broker and clearing house” as an example of regulatory contradiction.
Today we launched crypto asset trading platform Bittrex Inc. and its co-founder and former CEO William Shihara charged with running an unregistered national stock exchange, brokerage and clearing house.https://t.co/kBsIFMp7ZA
— U.S. Securities and Exchange Commission (@SECGov) April 17, 2023
Sounds confusing? That is the general consensus. And when it comes to NFTs, it becomes harder to call clean, as NFTs really just refer to a type of technology, a token that is non-fungible and can be used for all sorts of applications.
If an artist sells a unique composition as an NFT, it’s hard to see how that differs fundamentally from selling a painting (and therefore not a security). But what if a web3 start-up offers 10,000 NFTs, maybe with pixel art, or cartoon monkeys, or maybe just identical ticket-like designs, offering membership in their community? What exactly would traders buy here? Are they in it for the artistic token design, or is that incidental? Is this an investment opportunity, what happens to the funds raised and are the tokens bought in anticipation of price increases as the project grows?
#Slippage#Crypto#CryptoNews#Cryptocurrency#Cryptocurrencies#Bitcoin#ETH#BNB#TeamFollowBack#FollowBack#DEFI#NFTsSEC’s ‘brute force’ attempt at crypto regulation is ‘bad policy’ — Paradigmhttps://t.co/ipypSJlk5k pic.twitter. com /cQyt22bvl0
— Adept Asia Consulting (@AsiaAdept) Apr 21, 2023
Keep in mind that there are NFTs that offer metaverse avatars, game assets, membership in Discord communities, PFPs, access to art launches, access to media organizations, and there are some that simply act as speculative tokens with a small supply and through memes (and there are other uses besides these as well).
All this indicates that NFTs, when considered as a whole, can simply defy classification, while individual projects and collections can each be judged on their own merits.
Wider legal implications
It has recently emerged that US authorities are on the offensive against crypto, but the Chastain trial suggests there is still ambiguity about which authorities should target NFTs.
In the EU, there is a more progressive attitude towards crypto, and the recently passed MiCA legislation seems to have put the region on a path towards crypto industry integration and risk reduction. It is noteworthy, however, that MiCA does not cover NFTs in its current format, and again, the classification may prove difficult when it comes time for the EU to deal with this corner of the crypto world.
In addition, this highlights another issue that will not go away: the fact that the existing regulatory frameworks in the US may not adequately cover crypto, while MiCA in Europe offers a new model specifically related to crypto. This difference in approach could potentially create an unsustainable situation for the US, which risks falling behind in mastering the crypto industry and how it integrates with traditional finance.
NFTs remain an outside interest
Returning to NFTs, throughout their short timeline they have mainly existed as an oddball fringe in a crypto world that is itself unorthodox. Even long-standing crypto enthusiasts are divided on NFTs, some will collect and trade them, some reject them entirely, and NFTs have entered cycles of attention that don’t always align with the broader crypto market cycle.
Lately, NFT trading has been declining in volume and active portfolios, and collecting prices have fallen, just as memecoin trading (or, arguably, gambling) has taken off, suggesting that those who are on are looking for quick NFT trading profits, at least temporarily put their money to work elsewhere.
PEPE has led the charge of memecoin. CoinMarketCap chart
However, this scenario of ebbing and flowing attention is nothing new to NFTs, who often seem to enjoy their outsider status. And with NFTs transitioning into a wide variety of sectors, including the world of experimental art, it’s possible that while they’re currently out in the cold amidst stories of insider misconduct, they’ll see new waves of interest in the future. experienced. After all, traditional art markets are themselves no stranger to fraudulent activity, and so perhaps the digital art world is walking a familiar path in some ways.